Qin v Mossensons

Judgment (EX TEMPORE - REVISED 5 dECEMBER 2012) 1HIS HONOUR: I am concerned with an application brought by a defendant to restrain the plaintiffs' solicitors from continuing to act for the plaintiffs in these proceedings. 2The plaintiffs are Mr Zeng Zhao Qin and two companies, incorporated in the People's Republic of China, associated with him. They sue the defendants for relief in respect of alleged breaches of various agreements made between October 2007 and September 2010. 3The background to the transactions and events that are likely to be in issue in this case is that the plaintiffs and an Australian citizen, the fourth defendant Mr Ehrenfeld, wished to acquire a company that had certain characteristics, re-capitalise that company and cause it to acquire or establish a business. The desired characteristics of the company to be acquired were that it should be listed on the ASX, suspended from trading and requiring re-capitalisation. 4The project, or business, which was to be acquired ended up identified as a gypsum mine in China. 5To that end, the plaintiffs and Mr Ehrenfeld entered into an "acquisition agreement" in relation to a company of the kind identified. In turn, they 6identified the third defendant (Shandong Australia) as an appropriate company to be acquired for their purposes. 7Cutting through the various agreements and to the matters which give rise to the present application, it is apparent that the plaintiffs contributed or subscribed various funds to be held on trust pending the re-listing of Shandong Australia. The intent was that, when Shandong Australia was re-listed, the funds would be applied towards the acquisition of further shares in its capital and would enable the company to proceed with the acquisition of the gypsum mine. 8It is the plaintiffs' case that at least some of the moneys subscribed by them were held in trust by the first defendant, an incorporated legal practice in the State of Western Australia. 9As part of all this process, it was necessary for Shandong Australia to go through a form of due diligence process so that it could issue a prospectus for the capital raising. The solicitors who presently act for the plaintiff, HWL Ebsworth Lawyers (and I shall call them simply "HWLE"), were engaged in that process. I use this somewhat oblique phraseology because there is some conflict in the evidence as to the precise nature of that engagement. 10Ms Virginia Waterhouse, a partner in the firm, had responsibilities relating to the due diligence process. She has sworn that Shandong Australia "has never been a client of HWLE". She has also sworn that "HWLE was requested by Mr Zeng in about mid 2011 to manage the due diligence process for [Shandong's Australia] application for redemption to trading on the official list of the ASX". 11Ms Waterhouse refers, as does Mr Ehrenfeld in his affidavit evidence, to a planning memorandum for the Shandong Australia due diligence committee. That memorandum was prepared by HWLE and adopted by the committee. It states, among other things, that HWLE has "has been engaged to act as legal advisers to the company in relation to certain aspects of the offer". 12Ms Waterhouse seeks to "clarify" that statement (the verb is hers) in five ways. There is no evidence that the "clarifications" represent anything discussed or disclosed, to Shandong Australia or anyone else relevant, at or prior to the time of the initiation and consummation of the due diligence process. I do not regard those clarifications as having any relevant bearing on the dispute. 13There are other references in the due diligence material to the role of HWLE. They include the following.